AUDIT REPORT. Date: 20 June 2007 Revision: 0 FINAL REPORT (Redacted) Document No: REP-002. Level St Kilda Road MELBOURNE VIC 3004

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1 AUDIT REPORT Asset Management Systems Review for Gas Distributions Licence GDL 2: Coastal Supply Area for Date: 20 June 2007 Revision: 0 FINAL REPORT (Redacted) Document No: REP-002 Services to the Pipeline Industry Consulting Engineering and Design Project Management Operations Support Training Level St Kilda Road MELBOURNE VIC (0) tel +61 (0) fax OSD Offices: Brisbane Calgary Melbourne Perth OSD Energy Services ABN OSD Asset Services ABN PIPEd ABN OSD Energy Services, 2007

2 OSD Asset Services Pty Ltd, 2007 Limitations Statement This report has been prepared in accordance with the scope of services set out in the contract between OSD and the Client. That scope of services was defined by the requests of the Client, by the time and budgetary constraints imposed by the Client, and by the availability of access to the site. In preparing this report, OSD has relied upon and presumed accurate certain information (or absence thereof) relative to the site provided by the Client and others identified herein. Except as otherwise noted OSD has not attempted to verify the accuracy or completeness of any such information. This report has been prepared on behalf of and for the exclusive use of the Client, and is subject to and issued is connection with the provisions of the agreement between OSD and the Client. OSD accepts no liability or responsibility whatsoever for or in respect of any use of or reliance upon this report by any third party. Revision Status Prepared by Checked by Date A For Review by Client Barry Parsons Jodi Hayes 17 April 2007 B Final Draft Barry Parsons Jodi Hayes 27 April Final Report Barry Parsons Keith Horstmann 20 June 2007 Signatures: REP-002 GDL-2 Revision 0 Page 1 of 42

3 CONTENTS 1 Executive Summary Introduction Audit Report Mandate Audit Requirements Audit Objectives Methodology Audit Personnel Audit/Field Review Audit Priority Rating Report Previous Audit AGN Safety Case Summary Of Audit Findings Assess Compliance With Licence Conditions And Requirements Relationship of Asset Management System to Alinta Business Processes AGN Accountabilities and Responsibilities Performance Analysis Assess Effectiveness And Implementation Of Business Strategies And Plans For Proper Operation, Maintenance, Construction And Alteration Of Assets Provide an overall ranking of the compliance against reviewed/audited items Detail Action Items Or Recommendations for Improvement Of The Asset Management System Post Audit Implementation Plan Post Audit Activities Appendices See Attached Document: REP-002A Rev REP-002 GDL-2 Revision 0 Page 2 of 42

4 1 EECUTIVE SUMMARY Alinta Gas Networks Pty Ltd (AGN) has a gas distribution licence to construct, alter, operate and maintain and to transport gas through a distribution system within the licence area specified in Gas Distribution Licence No 2 (GDL 2). OSD Asset Services (OSD) carried out a review of the asset management systems in the GDL 2 licensed area, known formally as the Coastal Supply Area (GDL 2 supply area) during March and April The Coastal supply area is the largest of the three licensed gas supply areas within AGN s gas distribution business in Western Australia (WA), and includes the greater Perth metropolitan area. Alinta Asset Management (AAM) is the prime contractor for the maintenance and operation of AGN assets in WA. The asset management system was reviewed using the approved OSD Audit Plan, (OSD Document No: AP-001 Rev 4 dated 2 March 2007), based on the Economic Regulation Authority s Audit Guidelines: Electricity, Gas and Water Licences. The OSD Lead Auditor spent almost two weeks in Perth during from 6 March 2007 interviewing 13 AAM and ANH staff at the corporate office in the Perth CBD and at the operational base at Jandakot on 19, 20 and 23 March. The OSD Lead Auditor also interviewed 4 staff at Alinta s office in Mt Waverley, Victoria on 15 and 16 March in relation to support to the WA gas distribution business; i.e. emergency management, information services and regulatory affairs. One AAM staff member accompanied the Lead Auditor on the site visit to inspect a number of network facilities in the Canning Vale industrial area on 19 March. All relevant documentation requested was made available to the Lead Auditor. The asset management system operated by AGN in the GDL 2 supply area has now been in place since However, since the last asset management systems review in January 2005, Alinta has acquired the AGL business units including Agility that is in the process of being systematically merged with AGN and other Alinta business units elsewhere in Australia. Notwithstanding this activity, the Lead Auditor has focused on the asset management systems currently operating in WA. Many facets of the asset management system are being reviewed across the Alinta businesses so that eventually a common and consistent approach will be applied across Australia REP-002 GDL-2 Revision 0 Page 3 of 42

5 A number of actions, primarily related to the GDL 2 supply area, are still outstanding from the previous asset management system review carried out by MC2 Pacific P/L in January (Note: MC2 Pacific P/L review team visited Perth and Jandakot only in January 2005) - See Section 7. Overall, OSD considers that the asset management system in the GDL 2 supply area is being applied in a reasonably effective manner, although a number of issues have been identified that require action as noted in the summary below and in Section 9.4. The Effectiveness Rating applied for each process for the GDL 2 supply area is shown in the chart below. Refer to Appendix 1 for detail audit findings by OSD. ASSET MANAGEMENT SYSTEM Not performed Performed informally Planned and tracked Well defined Quantitatively controlled Continuously improving GDL 2: Coastal Supply Area Process Effectiveness rating Asset Planning Asset Creation/Acquisition Asset Disposal Environmental Analysis Asset Operations Asset Maintenance Asset Management Information Systems Risk Management Contingency Planning Financial Planning Capital Expenditure Planning Review of Asset Management System REP-002 GDL-2 Revision 0 Page 4 of 42

6 The basis of the assessed effectiveness for each process is discussed in section 9.3. Summary of Issues and Recommendations - See Section INTRODUCTION OSD carried out a review of the asset management system in AGN s GDL 2 licensed area (GDL 2 supply area), known formally as the Coastal Supply Area during March and April The gas networks within the GDL 2 supply area supply natural gas to approximately 550,700 industrial, commercial and domestic customers. The GDL 2 supply area covers the non-contiguous series of gas distribution networks extending from Geraldton the north to Busselton in the south, and includes the Perth metropolitan area. The gas distribution networks consist of approximately 134 km of class 600 and 555 km of class 150mains high pressure steel pipelines. These pipelines are connected via gate stations/pressure regulating stations to the Dampier-Bunbury Natural Gas Pipeline (DBNGP) and the Parmelia Pipeline. Pipeline diameters vary from 50mm to 350mm, with maximum allowable operating pressures (MAOP) between kpa. The remaining (approximately 11,400 km) gas distribution networks are constructed from a range of materials including, steel, polyethylene (PE), PVC and cast iron ranging in diameters from 40 mm to 635 mm. MAOP for these networks varies from kpa. GDL 2 is one of three licensed supply areas within AGN s gas distribution business in Western Australia (WA). The remaining licensed supply areas are GDL 1: Goldfields Esperance Supply Area and GDL 3: Great Southern Supply Area. OSD has produced separate audit reports for the asset management systems in these two licensed areas. The review covered the 24 month period ending 31 January 2007 and followed the processes outlined in Appendices 1, 2 and 3 of Audit Guidelines: Electricity, Gas and Water Licences, Economic Regulation Authority (the Authority), WA. The asset management system was reviewed using the approved OSD Audit Plan, (OSD Document No: AP-001 Rev 4 dated 2 March 2007), based on the Economic Regulation Authority s Audit Guidelines: Electricity, Gas and Water Licences REP-002 GDL-2 Revision 0 Page 5 of 42

7 The review also complied with the following standards: Risk evaluation model set out in AS/NZS 4360:2004 AUS 402 Risk Assessment and Internal Controls AUS 502 Audit Evidence AUS 806 Performance Auditing AUS 808 Planning Performance Audits AUS 810 Special Purpose Reports on the Effectiveness of Control Procedures The asset management system operated by AGN in the GDL 2 supply area has now been in place since However, since the last review in January 2005, Alinta has acquired the AGL business units including Agility that is in the process of being systematically merged with the AGN and other Alinta business units elsewhere in Australia. Notwithstanding this activity, the Lead Auditor has focused on the asset management systems currently operating in WA. Many facets of the asset management system are being reviewed across the Alinta businesses so that eventually a common and consistent approach will be applied across Australia. It should also be noted that during the review period, the Alinta Network Services (ANS)/National Power Services (NPS) WA Alliance Agreement expired on 31 March 2006, and a combined Alinta Asset Management (AAM) group was established effective 1 April REP-002 GDL-2 Revision 0 Page 6 of 42

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12 3 AUDIT REPORT MANDATE Specific activities within AGN are subject to gas distribution licences under the Energy Conservation Act 1994 (WA), (the Act). Section 11Y of the Act states that: it is a condition of every distribution licence that the licensee provides an asset management system. A condition of the licence is that the licensee must provide the Authority with a report on the effectiveness of the asset management system not less than once in every 24 month period, prepared by an independent expert. The Authority has approved OSD as an independent expert to carry out the review of the AGN asset management system and provide the effectiveness report. The review has been undertaken in accordance with the Authority s Audit Guidelines: Electricity, Gas and Water Licences. The Act, the Audit Guidelines and the Gas Distribution Licences provide the mandate for this Audit Report. 4 AUDIT REQUIREMENTS The purpose of the asset management system review/audit was to assess the measures taken by the licensee for the proper management of assets used in the provision and operation of services and, where appropriate, the construction and alteration of relevant assets REP-002 GDL-2 Revision 0 Page 11 of 42

13 In accordance with the Authority s Audit Guidelines, the asset management system review/audit focused on the asset management system, including asset management plans, which set out the measures that are taken by the licensee for the proper operation and maintenance of the assets. The plans are required to convey the licensee's business strategies to ensure the effective management of assets over at least a five year period. The Audit Guidelines stipulate that the primary purpose of the review/audit is to assess the effectiveness of measures taken by the licensee to ensure compliance with licence conditions or effectively manage its assets respectively. The Authority requires all audits to utilise a risk based approach to planning and conducting the audit/review. In accordance with AS/NZS 4360:2004, there should be more extensive audit testing of higher risk areas to provide sufficient assurance of compliance or effective control. The scope of the review/audit is detailed in Section 7 of the OSD Audit Plan. 5 AUDIT OBJECTIVES The objectives of the audit were to: Assess compliance with licence conditions and requirements Assess effectiveness and implementation of business strategies and plans for proper operation, maintenance, construction and alteration of the assets Provide an overall ranking of the compliance against reviewed/audited items Detail action items or recommendations for improvement of the asset management system. 6 METHODOLOGY OSD prepared an Audit Plan, (OSD Document No: AP-001 Rev 4 dated 2 March 2007), based on the Authority s Audit Guidelines: Electricity, Gas and Water Licences. The Audit process comprised the following aspects: Approval of Audit Plan by AGN Approval of Audit Plan by the Authority OSD conducting audit/field reviews, including a review of documentation and systems, a review of legislative documentation and interviews with relevant personnel from AGN s business REP-002 GDL-2 Revision 0 Page 12 of 42

14 Preparation of the Audit Report, incorporating an agreed post-audit implementation plan Approval of the Audit Report and post-audit implementation plan by Authority Implementation or actioning of Audit Report action items or noncompliances. A meeting was undertaken with the Authority and Energy Safety WA on 28 February 2007 in conjunction with an AGN representative to discuss the Audit Plan and to ensure that the Audit Plan meets the requirements of the Authority. The Authority approved the Audit Plan on 6 March The audit review field work was undertaken as follows: Perth, WA on 6-9 March and 23 March; Melbourne, VIC on 15 &16 March; Jandakot, WA on 19 & 20 March and 23 March 6.1 AUDIT PERSONNEL The Audit was conducted by the following OSD personnel: Barry Parsons Lead Auditor (full time) Jodi Hayes Assistant Auditor (part time) Keith Horstmann Project Director (part time/overview only) 6.2 AUDIT/FIELD REVIEW OSD carried out a review of the asset management systems in the GDL 2 supply area, known formally as the Coastal Supply Area during March and April The OSD Lead Auditor spent almost two weeks in Perth during from 6 March 2007 interviewing 12 AAM and ANH staff at the corporate office in the Perth CBD and at the operational base at Jandakot on 19, 20 and 23 March. One AAM staff member accompanied the Lead Auditor on the site visit to inspect a number of network facilities in the Canning Vale industrial area on 19 March. All relevant documentation requested was made available to the Lead Auditor. OSD also sourced and reviewed relevant documentation relating the GDL 2 supply area from AGN offices in Perth and Jandakot in WA and Melbourne in Victoria REP-002 GDL-2 Revision 0 Page 13 of 42

15 The asset management system was reviewed using the Protocol outlines in Section 3 of the Audit Plan which is based on the criteria outlined in Table 12, Appendix 3 (A Guide to the AMS Effectiveness Framework), Audit Guidelines, Electricity, Gas and Water Licences, Economic Regulation Authority, WA. The audit incorporated a review of documentation and systems, a review of legislative documentation and interviews with relevant personnel from the AGN business, in the various locations stated above. The audit also included a review of the previous audit action plan to verify that actions have been completed; considered actions that are not yet complete and these actions have been incorporated into the current audit review action plan where required Audit Priority Rating The review/audit priority rating detailed below has been determined based on the management system risk of each key process combined with the deficiencies identified in the previous audit conducted in January Key Process Inherent Risk Adequacy of 2007 Audit Priority Previous Controls (based on previous audit action items) Asset Planning Medium Strong 4 Asset creation and acquisition Medium Moderate 3 Asset disposal Low Strong 4 Environmental analysis Medium Moderate 3 Asset operations High Moderate 2 Asset maintenance High Moderate 2 Asset management information system Medium Strong 4 Risk management High Weak 1 Contingency planning High Strong 4 Financial planning Low Strong 4 Capital expenditure planning Low Strong REP-002 GDL-2 Revision 0 Page 14 of 42

16 Key Process Inherent Risk Adequacy of 2007 Audit Priority Previous Controls (based on previous audit action items) Review of AMS Low Strong REPORT Following completion of the field review, OSD discussed the findings with AGN and prepared this Report and a Post Audit Implementation Plan based on our discussions with AGN. 7 PREVIOUS AUDIT The previous asset management system audit undertaken in January 2005 produced an Implementation Plan detailing corrective actions in respect of the asset management system processes reviewed by the previous auditor(s). The Implementation Plan and the corrective actions required and the status of the actions as of the time of the 2007 review were assessed by the OSD Lead Auditor. A number of actions, primarily related to the GDL 2 supply area, are still outstanding from the previous asset management system review carried out by MC 2 Pacific P/L in January (Note: MC 2 Pacific P/L review team visited Perth and Jandakot only in January 2005). THE AMS EFFECTIVENESS AUDIT ACTION PLAN PREPARED BY MC 2 PACIFIC P/L FOR ACTIONING BY AGN WAS AS FOLLOWS, WITH PROPOSED AGN ACTION COMPLETION DATES SHOWN IN THE 4 TH COLUMN REP-002 GDL-2 Revision 0 Page 15 of 42

17 AMS Elements Issues Action Required Responsibility AMS2 No formal evidence of maintenance Incorporate minor documentation to Asset Mgt requirements and frequency changes that includes a documented risk reflect changes in future Asset Management Maintenance Plan By October 2005 assessment for the change. document usually finalised for issue in October AMS2, AUDITS AND CAR RELATED ISSUES Implement an integrated audit plan Tech Compliance AMS3, AMS7 & AMS8 ERA items 1, 3, 4 Outstanding CAR related to Environmental Management System process not being strictly adhered to. Monitoring implementation, progress and closing CAR s and CAR s status monitoring process. As above As above Set up monitoring process to ensure recommendations from audits, First 3 dot points are already implemented. Process developed by August 2005 Inaugural audit to ANS to monitor NPS audit process incidents reporting or emergency commence June 2005 applied to their contractors Need to improve provision of exercises are implemented and review their effectiveness and ongoing thereafter evidence that recommendation from Need to audit Contract management incidents, audits and emergency process from project plan to exercises have been implemented completion and review. and effective Contract management process audit does not target high risk areas Non conformance to Contractor Management Strategy AMS3 Currency of project management Implement document control Document Controller ERA items procedure procedure Already 1,14, No evidence of completed project Review completed project designs implemented design review Incorporate finding and Engineering Services Quality control issues relating to implementation and improvement recommendations into future maintenance and project By October 2005 recommendations from contract management process audit management plans Asset Mgt and Engineering REP-002 GDL-2 Revision 0 Page 16 of 42

18 AMS Elements Issues Action Required Responsibility Services By October 2005 AMS4 & General lack of monitoring and Set up quarterly task on Outlook to Asset Mgt AMS5 ERA items 5, 7, 9, 13 performance reporting of KPI s ensure AMS KPI s are monitored and performance reported. Identify action taken to correct non-compliance. By June 2005 Tech Compliance OHS & Environmental KPI s Already implemented AMS6 No corporate plans Include statement in AMS showing Asset Mgt ERA item 9 Need to review plans, identify the link to Corporate OGAM s First dot point by changes and formalise achieved Document changes, requirements Feb 2006 outcomes and achievements in the next relevant plans Second dot point by October 2005 AMS3, Lack of monitoring of position Ensure process exist where regular Alliance Mgr AMS7 responsibilities reviews are carried out. Alliance Mgr ERA items 2 & 10 Job descriptions do not cover all AMS responsibilities and relevant Review documents and personnel responsibilities By Sept 2005 strategies, plans or procedural documents not reviewed AMS8 Lack of or non existence monitoring HSEQ index is monitored monthly for Mgr Health, Safety & ERA item 11 and trend analysis of the HSEQ Strategic Plan corporate reporting to the Leadership Team and the Board. The Health & Safety Group currently undertakes Environment Already implemented and will continue to undertake to monitor the HSEQ index AMS10 Outdated emergency management Ensure that emergency management Risk Engineer plans and procedures are in need of improved implementation, monitoring documents are reviewed and implement risk management process By July 2005 and review including maintaining skills and testing The status of the actions undertaken by AGN was summarised in a letter addressed to the ERA on 22 June A copy of this letter is shown below: REP-002 GDL-2 Revision 0 Page 17 of 42

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20 AGN has advised the OSD Lead Auditor that no further status reports on the actions has been issued to ERA during the remainder of the review period. ERA, for their part, did not request a further update from AGN on the status of the outstanding actions after the date of this letter. AGN did amend the action plan on 23 August 2005 as follows: REP-002 GDL-2 Revision 0 Page 19 of 42

21 AMS3: Need to audit Contract management process from project plan to completion and review. Technical Compliance stated we no longer do contract management audits however, audits in project management (Engineering Services) will target high risk areas such as assessment of contractors work for acceptance. Note that field audits of contractors are to be done by NPS). OSD assessment AAM are carrying out audits and assessments of external contractors as noted in Key Process #2. AMS 3: Set up monitoring process to ensure recommendations from audits, incidents reporting or emergency exercises are implemented and review their effectiveness. Technical Compliance stated: CARS are logged in CARS register. Incident investigation recommendations are recorded in incident register kept by Tech Comp. Still need to set up register for emergency exercises. In relation to evaluation of effectiveness: CARS as part of audit process; incidents evaluation in the form of tracking number of incidents; and emergency exercises effectiveness evaluated at next annual exercise. OSD considers the outstanding non-completed actions from the MC 2 Pacific January 2005 audit must be completed as part of this AMS review. AGN must notify ERA when the outstanding actions have been completed or what alternative actions have been taken by AGN to mitigate the deficiency. Recommendation GDL2-1: AGN must complete the outstanding non-completed actions from the MC 2 Pacific January 2005 audit by as part of the OSD AMS review, and notify ERA when the outstanding actions have been completed or what alternative actions have been taken by AGN to mitigate the deficiency. 8 AGN SAFETY CASE The Safety Case for the AGN asset management system, as required by the Gas Standards (Gas Supply and System Safety) Regulations 2000, has yet to be approved by the Director of Energy Safety. As agreed with the Authority and the Director of Energy Safety, this review has not considered the Safety Case in respect of the asset management system. A draft version of the Safety Case currently awaiting approval from the Director of Energy Safety was reviewed by the Lead Auditor for information purposes only REP-002 GDL-2 Revision 0 Page 20 of 42

22 However, the asset management system has been reviewed in terms of compliance with the recognised codes and standards stated in Schedule 2 of the Gas Standards (Gas Supply and System Safety) Regulations SUMMARY OF AUDIT FINDINGS As stated in Section 5 above, the objectives of the audit were to: Assess compliance with licence conditions and requirements Assess effectiveness and implementation of business strategies and plans for proper operation, maintenance, construction and alteration of the assets Provide an overall ranking of the compliance against reviewed/audited items Detail action items or recommendations for improvement of the asset management system In terms of determining whether AGN met the audit objectives, it was necessary for OSD to determine whether the AGN asset management system was effective in itself. AUS 806, Performance Auditing, defines effectiveness as the achievement of objectives or other intended effects of activities. In most cases, intended outcomes are usually measured by Key Performance Indicators (KPIs) that are documented in various business plans. From this perspective, OSD has focused on the outcomes intended by AGN in their asset management strategies, plans and procedures, and specifically on the KPIs established by AGN for, and the outcomes achieved at certain times throughout the review period. OSD has also reviewed several plans that have been prepared by AAM for 2007 and beyond in terms of KPIs. OSD s assessment of AGN s compliance and effectiveness in respect of the objectives is as follows: 9.1 ASSESS COMPLIANCE WITH LICENCE CONDITIONS AND REQUIREMENTS Relationship of Asset Management System to Alinta Business Processes A specific requirement in the Licence is that: REP-002 GDL-2 Revision 0 Page 21 of 42

23 An asset management system is to set out the measures to be taken by the licensee for the proper maintenance of assets used in the supply or provision of gas and where relevant, the construction, operation and disposal of these assets. AGN has a formal strategy document entitled Asset Management System AAM- S that provides the framework for AAM to deliver the required obligations to AGN under the operating services agreement between the two parties and to satisfy the licence requirements. AGN has stated that the primary focus of the asset management system strategy is to provide a safe, reliable and cost effective delivery of natural gas to the energy consumers of Western Australia. This document was originally approved by the Coordinator of Energy in May AGN has recently revised this document in January AGN has developed a holistic approach to asset management that is described by a system that integrates the key business elements in the network asset life cycle, and the critical mass support required at different levels of the organisation to implement this system. The full life-cycle cost of asset purchase, operation, maintenance and disposal is taken into account in asset investment decision making. The asset management system employed by AGN encompasses all elements required to achieve a complete approach to asset management. Accordingly the key business elements need to be identified independently of the current business processes. Based on a complete examination of the asset life cycle the key business elements that facilitate the asset management system are shown in the chart below REP-002 GDL-2 Revision 0 Page 22 of 42

24 AGN Asset Management System Improvement Cycle REP-002 GDL-2 Revision 0 Page 23 of 42

25 9.1.2 AGN Accountabilities and Responsibilities AAM is responsible for maximising the return on investment for assets in AGN s gas distribution network while: Ensuring a high level of service, security and reliability of supply to gas consumers Minimising the financial, safety and environmental risks associated with managing these assets Meeting all legal and regulatory requirements. The effectiveness of the asset management system in achieving these requirements is determined from the Key Performance Indicators (KPIs) shown in the table below. The AAM teams have the ultimate responsibility for the implementation, monitoring and evaluation of the asset management system. The job functions within AAM that are responsible for the management of various aspects of the AGN Asset Management System are shown in the following table: Job Function General Manager Asset Services General Manager Operations Manager Asset Management Gas Manager Technical Compliance Asset Manager AGN WA Manager Gas Distribution West Principal Engineer Engineering Services Responsibility Overall Responsibility for Asset Services Overall Responsibility for Operations Strategic, Opex, Capex and Asset Management Plans Manage statutory and regulatory technical compliance requirement of operating the network. Asset management and performance. Network planning and integrity. Asset Management, Network Development and Maintenance Plans. Management of the Maintenance, Construction and Field Activities. Ensure emergency preparedness and response system of the network. Project Management Plan. Construction and Facility Design REP-002 GDL-2 Revision 0 Page 24 of 42

26 Safety & Risk Engineer GNIS Coordinator Field Auditor Safety Case, QA system, DMS system, Safety Case system audits Asset Register in GNIS QA and Safety Case Systems Audit Performance Analysis AGN annually review the improvement in the development of the gas distribution networks as well as the outcomes from the scheduled and unscheduled asset maintenance activities. These results of these reviews are documented in the following documents: High Pressure Gas Distribution and Medium Pressure Gas Distribution Network Development Plans, which have details of the system enhancements carried in the preceding and previous year(s) Review of Distribution System Performance, which evaluate the effectiveness of the enhancement program implemented in the preceding year Distribution Network Asset Management Maintenance Plan, which has detailed maintenance activities and new maintenance strategies from the previous year s plan. AGN also evaluates and makes comparisons of actual performance on an annual basis against performance targets for each indicator, which are listed in the table below.. If necessary, a more in depth review of the background information is conducted to achieve overall performance improvements in these indicators. From the review of these indicators and related background information new improvement initiatives are developed which cover areas such as: improved work procedures new construction as well as maintenance and operation techniques new materials/designs or improved technologies to be used in the network. The tools/triggers utilised for identifying possible improvements in the design or materials for network assets or for established operational activities include: fault analysis in the RCM analysis review of technical specifications and design guidelines feedback from field personnel annual review of quality systems (work procedures etc.) REP-002 GDL-2 Revision 0 Page 25 of 42

27 Performance Indicators for the Asset Management System Performance Indicator Parameter Target Data Recorded Design and Planning No. of Low-Pressure Alarm Instances No. of Operating Outside Expected Range Instances Commissioning HP Pipeline Maintenance Pipelines / Laterals Instances of Damage to HP Pipelines Instances of Damage to MP/LP Pipelines Instances of Damage to Warning Signs Defects (Leaks) per km of main No. of Test Points with potential higher (worse) than 0.85V Maintenance Regulator Sets No. of HP Regulator Set Failures No. of MP Regulator Set Failures (where/who) Total No. <10/year Control Room Total No. <20/year Control Room Complete Manufactures Data Report Total km of Main per Instance of Damage per Year Total km of Main per Instance of Damage per Year Total Instances per Year Total km of Main per Instance of Defect per Year No. of Test Points per Total No. of Test Points per Year No of Failures per 100 HP Regulator Sets per Year No of Failures per 100 MP Regulator Sets per Year Maintenance Pressure Reducing Stations No. of PRS Failures Maintenance Isolation Valves No of Valves not operational No of Failures per 100 PRS per Year No. of Valves per Total No. of Valves per Year < 7 Days of completion >100 km per Instance per Year >30 km per Instance per Year <100 Instances per Year >5 km per Instance per Year Contracts & Resource Management SAP/R3 - PM Module Asset Management SAP/R3 - PM Module Asset Management SAP/R3 - PM Module Asset Management SAP/R3 - PM Module Asset Management <5% per Year SAP/R3 - PM Module Asset Management <2 Failures per 100 HP Regulator Sets per Year <5 Failures per 100 MP Regulator Sets per Year <2 Failures per 100 PRS per Year <1% per Year Maintenance Industrial/Commercial Meter Sets (AL30 and above) No of Meter Set Failures No of Failures per 100 Meter Sets per year <2 Failures per 100 Meter Sets per year SAP/R3 - PM Module Asset Management SAP/R3 - PM Module Asset Management SAP/R3 - PM Module Asset Management SAP/R3 - PM Module Asset Management SAP/R3 - PM Module Asset Management Monitoring (frequency / how) Weekly Network Operations Bulletin Weekly Network Operations Bulletin Monthly Report A - Maintenance Plan A - Maintenance Plan A - Maintenance Plan A - Maintenance Plan A - Maintenance Plan A - Maintenance Plan A - Maintenance Plan A - Maintenance Plan A - Maintenance Plan A - Maintenance Plan REP-002 GDL-2 Revision 0 Page 26 of 42

28 No of Meter found Operating Outside Prescribed Accuracy No of Meter found Operating Outside Prescribed Accuracy per 100 Meter Sets per Year <5% per Year SAP/R3 - PM Module Asset Management A - Maintenance Plan Maintenance Domestic/Small Commercial Meter Sets (AL12 and below) No. of Defects per Total No. of Domestic Meter Installations No. of Defects per Total No. of Small Commercial Meter Installations No. of Instances of Damage per Total No. of Meter Installations No. of Meter Population failing Statistical Sampling No. of Defects per 100 Domestic Meter Installations per Year No. of Defects per 100 Small Commercial Meter Installations per Year No of Instances of Damage per 100 Meter Installations per Year No of populations Operations Major Events and Incidents No. of Broken Mains No. of Broken Services Operations System Performance Unaccounted For Gas (UAFG) Minutes per customer lost due to unplanned supply interruptions Supply interruptions per 1000 customers Decommissioning Demolitions Auditing No. of audits and nonconformances Customer Service Standards Customer Connection Time Attendance to Broken Mains and Services Attendance to Gas Smells in a Public Area Attendance to Gas Smells at Meter Standard Response Total No. Total No. % of Total GJ CMOS Avg. No. of customers No incidents x Avg. No. of customers % completed and made safe (within 7 working days) Total No of Audits conducted per Month and no. of nonconformances % of Services Connected to established LOM within 7 days % of Faults attended to within 1 Hour % attended to within 2 Hours % attended to within 48 Hours <2 Defects per 100 Domestic Meter Installations per Year <8 Defects per 100 Small Commercial Meter Installations per Year <1 Instance of Damage per 100 Meter Installations per Year All population pass 2.5 per 1000km of Main 0.25 per 1000 Delivery Points Coastal Network 2.6% SAP/R3 - PM Module Asset Management SAP/R3 - PM Module Asset Management SAP/R3 - PM Module Asset Management Outcome Report Asset Management Control Room Control Room Network Monitoring 0.66 mins/cust/ year Control Room 6 / 1000 customers Control Room 100% As per Annual Internal Quality Audit Plan SAP/R3 PM Module Field Services Quality Assurance Section A - Maintenance Plan A - Maintenance Plan A - Maintenance Plan A Statistical Sampling Weekly Network Operations Bulletin Weekly Network Operations Bulletin A UAFG Report Weekly Network Operations Bulletin Weekly Network Operations Bulletin M-Networks Report M Technical Compliance REP-002 GDL-2 Revision 0 Page 27 of 42 95% 95% 95% 95% SAP R/3 Field Services Section F - Branch Meetings M - Networks Report A - Annual Report SAP R/3 M - Networks Report Field Services Section SAP R/3 M - Networks Report Field Services Section SAP R/3 M - Networks Report Field Services Section

29 Attendance to Gas Smells at Meter Urgent Response Urgent Response is set at the discretion of the Faults Call Centre Operator. Attendance to No Gas (Commercial) Attendance to No Gas (Domestic) % attended to within Specified Time % attended to within 2 Hours % attended to within 3 Hours 95% 95% 95% SAP R/3 Field Services Section SAP R/3 Field Services Section SAP R/3 Field Services Section M - Networks Report M - Networks Report M - Networks Report The requirements in relation to performing maintenance activities within the prerequisite time frames and to the specified standards are set to maximise resource utilisation within AAM and to an agreed two weeks window prior to the activity requiring to start. In summary, OSD considers that AGN s asset management system of its gas distribution networks in the Coastal supply area demonstrates compliance with the conditions and requirements as stated in the GDL 2 supply area licence. This is discussed in further detail under the Audit Findings for each process. 9.2 ASSESS EFFECTIVENESS AND IMPLEMENTATION OF BUSINESS STRATEGIES AND PLANS FOR PROPER OPERATION, MAINTENANCE, CONSTRUCTION AND ALTERATION OF ASSETS The implementation of business strategies and plans is documented in the Alinta Network Holdings Strategic Plan issued in November This document is still in draft form, and still awaits formal approval from the Alinta Board. As noted in the excerpt from the Preface to the Strategic Plan (refer below), this Plan is underpinned by the Asset Management Plan that is reviewed annually by AAM, which provides the major long term strategy for the AGN gas distribution business in WA REP-002 GDL-2 Revision 0 Page 28 of 42

30 The business strategies and plans that AGN and AAM had in place over the review period and those in place going forward are being reviewed continuously, particularly in view of the ongoing integration of the AGL/Agility businesses into the Alinta group. Obviously, this is necessary to enable Alinta and its operating subsidiaries to satisfy the various stakeholders and to maintain a sustainable gas distribution business in WA and elsewhere in Australia in the long term. In summary, OSD considers that AAM demonstrates a reasonably high level of effectiveness with the asset management system used on the AGN gas distribution networks in the Coastal supply area to ensure that the asset owner s business objectives are met and the gas distribution networks are operated, maintained, constructed and altered in accordance with accepted industry practice. This is discussed in further detail under the Audit Findings for each process REP-002 GDL-2 Revision 0 Page 29 of 42

31 9.3 PROVIDE AN OVERALL RANKING OF THE COMPLIANCE AGAINST REVIEWED/AUDITED ITEMS The previous January 2005 review of the asset management system did not provide a numerical ranking for the various processes or elements. The assessment terminology used was inadequate, largely adequate, adequate and excellent. The OSD ranking is shown in the chart below: ASSET MANAGEMENT SYSTEM Not performed Performed i f ll Planned and t k d Well defined Quantitatively t ll d Continuously i i GDL 2: Coastal Supply Area Process Effectiveness rating Asset Planning Asset Creation/Acquisition Asset Disposal Environmental Analysis Asset Operations Asset Maintenance Asset Management Information Systems Risk Management Contingency Planning Financial Planning Capital Expenditure Planning Review of Asset Management System REP-002 GDL-2 Revision 0 Page 30 of 42

32 The following table provides a description of the compliance status and the relative rating. Compliance status Rating Description of compliance Continuously improving Quantitatively controlled 5 4 Continuously improving organisation capability and process effectiveness Measurable performance goals established and monitored Well defined 3 Planned and tracked 2 Standard processes documented, performed and coordinated Performance is planned, supervised, verified and tracked Performed informally 1 Base practices are performed Not performed 0 Not performed (indicate if not applicable) OSD has also attempted to determine if AGN has improved its performance in respect of the asset management system since the previous 2005 review. Whilst the processes/elements have been revised, it is possible to gauge what processes/elements have seen an improvement during the current review period. This is shown in the table below: Process/Element 2005 AMS Review 2007 AMS Review OSD assessment Asset Planning Adequate (3) Quantitatively controlled (4) AGN regularly monitors and reviews the planning process Asset Creation & Acquisition Largely Adequate (4) Well defined (3) + AGN has well defined processes for most aspects of the asset creation process; further improvements required REP-002 GDL-2 Revision 0 Page 31 of 42

33 Process/Element 2005 AMS Review 2007 AMS Review OSD assessment Asset Disposal Adequate (3) Quantitatively controlled (4) AGN is moving progressively toward a continuously improving AMS asset creation and acquisition process Environmental Analysis Not measured Well defined (3) AGN has active monitoring in place; processes are still evolving Asset Operations Adequate (3) Asset Maintenance Adequate (3) Quantitatively controlled (4) Well defined (3) AGN is moving progressively toward a continuously improving AMS asset operations process AGN needs to improve on the maintenance processes Asset MIS Largely Adequate (4) Continuously improving (5) AGN has a robust asset MIS that is scheduled for further enhancements Risk Management Adequate (3) Quantitatively controlled (4) AGN is moving progressively toward a continuously improving risk management REP-002 GDL-2 Revision 0 Page 32 of 42

34 Process/Element 2005 AMS Review 2007 AMS Review OSD assessment process Contingency Planning Largely Adequate (4) Well defined (3) AGN has well defined processes for most aspects of the asset creation process; further improvements required Financial Planning Adequate (3) Continuously improving (5) AGN has a robust financial planning process in conjunction with the parent company Capital Planning Expenditure Adequate (3) Continuously improving (5) AGN has a robust capex planning process in conjunction with the parent company Review of AMS Adequate (3) Quantitatively controlled (4) AGN undertakes annual reviews of the AMS The OSD assessment recognises that the gas distribution networks in the Coastal supply area are relatively mature networks. The gas distribution networks outside the major Perth metropolitan area vary in size. As noted previously, the previous AMS review was focused solely on the GDL 2 Coastal supply area. Any improvements noted in the table above is what OSD considers to be the situation at the end of the review period. OSD is also of the REP-002 GDL-2 Revision 0 Page 33 of 42

35 opinion that with the integration of the AGL business into Alinta, and the current reviews of all documentation and processes across Alinta, it is envisaged that the AGN asset management system in the GDL 2 supply area should reach a level of capability that is continuously improving over time and providing a high level of process effectiveness. 9.4 DETAIL ACTION ITEMS OR RECOMMENDATIONS FOR IMPROVEMENT OF THE ASSET MANAGEMENT SYSTEM OSD has identified the following issues and the recommended actions required for the GDL 2 supply area following the assessment of the asset management system processes used by AAM on the AGN gas distribution network assets in the Coastal supply area. Key Process Issue Recommendation Section 7 Previous Audit #2 Asset Creation Acquisition #2 Asset Creation Acquisition & & OSD considers the outstanding non-completed actions from the MC 2 Pacific January 2005 audit must be completed as part of this AMS review. AGN must notify ERA when the outstanding actions have been completed or what alternative actions have been taken by AGN to mitigate the deficiency. (See additional comments in the Appendices) development AGN provided assistance to the Developer for inspection services of the private reticulation in on a fee for service basis. AGN was unaware that the Developer had not obtained the requisite license from the Authority to design and install a gas distribution infrastructure in. Station works, The issue of concern is the fact that the gas pipeline passes through a reinforced concrete footing that supports one of the pier structures Recommendation GDL2-1: AGN must complete the outstanding non-completed actions from the MC 2 Pacific January 2005 audit by as part of the OSD AMS review, and notify ERA when the outstanding actions have been completed or what alternative actions have been taken by AGN to mitigate the deficiency. Recommendation GDL2-2: AGN needs to have in place: (a) trained staff that are aware of the legislative issues relating to gas distribution in WA, and (b) Documented procedures to ensure that any issues similar to this development are properly processed and actioned. Recommendation GDL2-3: AGN should communicate with Energy Safety Division in situations where alternative design practices are proposed REP-002 GDL-2 Revision 0 Page 34 of 42

36 Key Process Issue Recommendation #2 Asset Creation & Acquisition #5 Asset Operations #6 Asset Maintenance #6 Asset Maintenance that in turn supports the elevated platform/concourse area at the station. The pipeline has been encased with concrete for the full length of the crossing under the station complex and the freeway. The main issue has been the minimum depth of cover over the riser pipe during the transition from below ground to above ground, particularly in situations where the building foundation protrudes out from the building line. OSD found no evidence that AGN had undertaken or acted upon the recommendations in the notifiable incident reports. To ensure that these matters are properly closed out, AGN should include a section in the notifiable incident report that states the actions taken by whom and when, and signed off by the relevant persons and their supervisor. In general, most of the sites were in reasonably good condition, although corrosion on the pipework was visible at several sites. The maintenance inspection records for all of the 9 sites were reviewed. All of the sites visited had been last inspected late 2006 or early Corrosion was not stated as an action on one of the reports where rust is prevalent on the pipework at a bakery meter set - see picture below. No action has been taken to date. During the site visits, a number of post-mounted warning signs were found to be in a damaged state and a number of signs were no longer legible, following prolonged exposure to ultra-violet light. Given the importance of these warning signs as the first line of defence that do not comply with the requirements of AS 2885, and/or normal gas industry practice. Recommendation GDL2-4: AGN should resolve the issue of service riser pipes with Energy Safety Division to achieve a practical outcome that satisfies the code and is cost effective. Recommendation GDL 2-5: AGN should include a section in the notifiable incident report that states the actions taken by whom and when, and signed off by the relevant persons and their supervisor. Recommendation GDL2-6: AGN shall ensure that corrosion on pipework is properly addressed during scheduled maintenance work on all network assets. Recommendation GDL2-7: AGN shall ensure that warning signage (post-mounted or otherwise) is legible at all times many signs have been damaged and also many have faded from ultra-violet REP-002 GDL-2 Revision 0 Page 35 of 42

37 Key Process Issue Recommendation #6 Asset Maintenance #6 Asset Maintenance #6 Asset Maintenance against unauthorized third-party works, it is essential that the warning signs are maintained in good condition. The mains breaks recorded in the Coastal gas distribution networks are well below AGN s internal maximum KPI target of 3/100 km main; for 2005 and for In OSD s view, AGN should review the KPI target for the level of mains breaks to reflect more closely the actual number of mains breaks occurring on a monthly basis. This action may result in AGN taking a more proactive approach to controlling the level of mains breaks including further education programs with the relevant parties undertaking works over the gas distribution networks in the GDL 2 supply area. OSD notes that AGN has an established awareness program. OSD s view is that the total service breaks over the period are significant and are on average matching the KPI threshold set by AGN. OSD s assessment is that additional, specific education measures for customers are required to reduce the number of breaks on gas services within customer s properties. This may best be achieved via the customer s gas retailer. A snapshot of gas leaks or escapes reported by the public in the period is shows that actual reported escapes are well down on what was planned. Obviously, AGN need to reassess the plan for 2007 to reflect the current trend in reported leaks or gas escapes. exposure. Recommendation GDL2-8: AGN should reassess the target KPI for mains breaks and consider specific additional education measures to reduce the number of mains breaks in the Coastal gas distribution networks. Recommendation GDL2-9: AGN should consider specific additional education measures (give greater emphasis to prevention of damage to gas services in its information bulletins) to reduce the number of breaks on service connections in the Coastal gas distribution networks. Recommendation 10: GDL2 AGN should reassess the target KPI for publicly reported gas leaks or escapes to reflect current reporting trends REP-002 GDL-2 Revision 0 Page 36 of 42